MILLER ON PROCUREMENT.

By Terry Miller

Two of the more complex and rather hidden issues in selling to the federal agencies are the Buy American Act (BAA) and the Trade Agreements Act (TAA). If readers wish more detailed information we have two larger articles on this vital subject.

As you know, it is common for U.S. firms to move manufacturing off shore because of labor savings. One would be hard pressed, for example, to find a pc built entirely in the U.S., or even a monitor.

What many people find to be a problem is that not all off shore sites are equal in the eyes of the laws. Many countries are not approved under the TAA law which kicks in above $190,000 per contract value. If the country is not listed in FAR Part 25 as having signed the GATT treaty then they are not allowed to do business under the TAA. Period! They are also not then eligible to be on GSA Schedule, as well.

They are eligible to do business under $2,500 per purchase order because the laws don't apply. Between $2,501 and $190,000, the TAA does not apply but the BAA does. Such products built in non-signatory countries are eligible to win but all foreign products are treated the same regardless of country of origin, which means the foreign product can win the bid but has a 6%, 12% or 50% penalty added on before prices are compared. This process is also complex.

However, most firms are not content to be restricted to doing business under the $190,000 threshold because this means you can't be on the GSA schedule and can't generally be a sub on DT V, etc. Not a good spot to be in. Many large firms like DEC, HP and Compaq have been faced with variations of this problem.

When a company is manufacturing in a country which is a no no, like Singapore, China, Taiwan, The Philippines or Malaysia, they are simply ineligible except for bids below the $190,000 level.

One exception exists. If you build a product which is commonly incorporated into another larger product and the unit priced is the larger product, components can pass the test because of the "substantially transformed" rule. This is too complex to discuss in this article, but if you turn wood pulp from China into paper in Japan or the US, that is fine.

Now, it gets serious. IBM paid a huge fine to GSA a few years ago partly because they misrepresented gear built outside of the U.S. as built in the U.S. You must be truthful, or face the results.

Most large firms either escape the results of the law because of substantial transformation or because they also have a plant in Ireland, or some other approved country, and they must ensure that they ship everything to the federal government which is built in Ireland and nothing built in Singapore or China. Can your distribution system handle this?

We have seen numerous cases of pure fraud where firms ignorantly or deliberately do not tell the agency the truth. Often they escape detection because the government is lax. But not always.

However, in any case, failure to solve this problem, preferably by also manufacturing in a signatory country as well as China or Singapore, will result in eventual loss of your federal business channel unless you can survive by winning bids where the TAA does not apply, that is below $190,000.

As an aside, the threshold figure constantly changes because of complex relationships in GATT. It ranges somewhere around $50,000 and has been as low as $140,000 and as high as $192,000. It will change again.